Summary: When private equity firms buy up companies they expect to avoid shareholder pressure campaigns—especially those devised by labor unions. Or so they hope.
Mention the names of certain large corporations, and many people start to think bad things. ExxonMobil reaps "windfall profits" as it "gouges" drivers with high gas prices. Wal-Mart "destroys" city downtowns by "undercutting" mom-and-pop shops.
Sound familiar? That’s precisely how organized labor and their allies want it. These companies have been targets of "corporate campaigns"—public relations onslaughts designed to damage a company’s reputation.
When planning corporate campaigns, unions and activist groups research their target and identify its weaknesses. One key pressure point is a company’s need for capital. Because they often have great influence over pension funds, many unions are able to pressure companies by having the funds offer shareholder resolutions at corporate annual meetings. More and more companies find themselves under the gun, dealing with aggressive union-sponsored shareholder resolutions.
However, the enactment of the 2002 Sarbanes-Oxley Act, in the wake of the Enron and WorldCom scandals, has sparked an unanticipated response from some companies. To avoid burdensome government regulation, they are deciding not to list their shares on American stock exchanges—a trend that is leading to more stock listings in overseas financial centers like London and Hong Kong. In some cases, companies have even de-listed their stock shares in the U.S.
This has created great asset shopping opportunities for private equity firms, which are buying up publicly owned companies. Because they do not trade publicly, private equity firms are not directly exposed to the kinds of shareholder pressure that publicly traded companies face.
However, organized labor isn’t about to sit idly by and let this development continue unchecked. Union officials understand that they must adapt to a new investment environment and they are looking for bold new ways to meet the challenge of private equity.